Crude oil futures rose to record highs on Thursday, hitting European stocks and the dollar, with worries over rising tensions in the Middle East and North Korea affecting sentiment across the board.
Euro zone government bonds and U.S. Treasuries rose as investors moved into safe-haven assets while gold was above its U.S. closing level.
North Korea stormed out of talks with South Korea over the missile crisis while Israel enforced a naval blockade of Lebanon and bombed Beirut airport in reprisals for Hizbollah seizing two soldiers and killing eight a day earlier.
NYMEX crude struck a record $75.89 a barrel and IPE Brent hit a highest-ever $75.60 after a large drop in U.S. crude supplies the previous day and as Iran continued to defy the West over its nuclear intentions.
Geopolitical risk is out of control, said Tony Nunan, a risk manager at Mitsubishi Corp.
There's a pipeline attack in Nigeria, Israel is taking a strong stance and that's adding fuel to the fire, but more than anything it's U.S. gasoline demand holding up and the Iran situation.
Europe's FTSEurofirst 300 share index was down 1 percent at 1,299.7 points with investors continuing to fret that high oil prices and rising borrowing costs will hit corporate earnings.
New York's Dow Jones industrial average closed 1.1 percent or 122 points lower at 11,013.18 points on Wednesday with U.S. stock index futures indicating another fall later on nagging earnings worries.
In Tokyo, the Nikkei average ended down almost 1 percent at 15,097.95.
Safe-haven buying sent the dollar down 0.3 percent against the Swiss franc near the day's low of 1.2282 francs .
The greenback was also a quarter percent lower against the yen at 115.17 yen with the Bank of Japan widely expected to raise interest rates from near-zero when its two-day policy meeting ends on Friday.
Comments from Japan's ruling Liberal Democratic Party policy chief reinforced expectations of monetary tightening.
The escalation of Middle East violence is worrying markets because of fears of a widening conflict in the region. Israel is again engaged on two fronts, with no let-up seen in its Gaza assault despite the flare-up in Lebanon.
During a major offensive into the Gaza Strip to retrieve a captured soldier and halt Palestinian rocket fire, an air strike destroyed the office of Palestinian Foreign Minister Mahmoud al-Zahar.
The 10-year benchmark yield on U.S. Treasuries lost 1 basis point to 5.096 percent while prices on 10-year euro zone government bonds were higher, pushing yields 2.6 basis points lower to 4.038 percent.